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Cheap Car Loans

A loan to buy a new car can be a very cost effective way to purchase your new motor! We have done the heavy lifting for you and found the best deals for different types of car buyer.

Cheap Car Loans Summary:

Here are the fast facts:

  1. Cheaper than car finance deals.
  2. Mainly online providers.
  3. Must be over 18 years old.
  4. Better credit rating gets lower interest rates.
  5. 1 – 5 years usually.

Read our full guide below, or skip to the best rates.

Compare the Best Cheap Car Loans Online

Here are our hot picks from the hottest car finance deals available at the moment. Suitable for small, medium and larger car loans.

Best Cheap Car Loan up to £5,000 – Admiral

Borrow from £1,000 to £7,400. Best rate representative 3.3% APR, when borrowing £5,000 over 60 months.

Best Cheap Car Loan up to £15,000 – Yorkshire Bank

Borrow from £7,500 to £25,000. Best rate representative is 2.8% APR.

Best Cheap Car Loan up to £25,000 – Zopa

Borrow from £1,000 to £25,000. Best rate representative 2.9% APR, when borrowing £25,000 over 60 months.

What is a personal car loan?

Some car loan deals are really lease deals (long-term rentals), which means that you need to return the car at the end of the loan period. If you want to own the vehicle outright at the end of the loan period, you may want to use a personal car loan.

 

How does it work when buying a car?

First you find the car you want to buy, or determine how much you want to spend, then find the car. Subtract the amount you have for a deposit from the total price, and you’ll know how much you need to borrow. Be sure to include any fees involved, so you can cover the total cost without disappointing surprises.

When you are approved for the loan, you will be able to pay for the car outright, and make payments to the lender for the agreed period. If you fail to make the payments on time, the lender may be legally entitled to take back the car and even seek further compensation, regardless of how much you have already paid on your loan.

 

Pay some with a credit card for protection

It is unlikely that anything will go wrong with the car or the loan, but if it does, it is nice to have some protection to safeguard your investment. If you can pay at least some of the cost of the car (the deposit, for example), using your credit card, then you will qualify for protection under Section 75 legislation. This makes the credit card company jointly liable with the car dealer, if there are any problems from their end.

 

What happens when I pay my car loan off?

Unlike some other types of car loans, once you pay off this loan, the car is yours. The debt is settled. From that point onward the dealer and the card company will not have any liability (unless the loan was paid off very quickly, or some kind of gross negligence can be shown on their part) and no claim on your vehicle. You are free to sell the vehicle onward without clearing it with the lender, or of course you can keep it.

 

Is a personal car loan right for me?

This is largely a personal choice, but there are several things to consider that will help you decide if this is the right thing for you.

First of all, the loan is straightforward and simple to understand. The costs are easy to figure out, as it is a matter of fees and interest – no dealing with allotted miles per year, return values, and so on.

Second, these loans are quite flexible. You can take out a loan for a shorter period to reduce overall interest costs (as little as one year) or for a longer period to reduce monthly costs – which will increase overall interest costs of course, but may be easier on the budget.

Once you pay the dealer, even if you still owe the lender, you are free to modify the vehicle. You can add installed equipment to a truck, for example, or change a vehicle’s engine parts, built-in accessories… any customisation you choose.

By paying for the vehicle outright, the dealer does not have to arrange financing for you. Sometimes this is a disadvantage (in the case where the dealer stands to make money from the financing, for example), but often it means a no-risk sale for the dealer and you may be able to haggle the price down. Get a good enough deal, and the interest on the loan may be covered by the savings you gain in paying the dealer for the vehicle up front.

Finally, the interest rates for personal loans are often cheaper than those offered by dealer finance. Not always (sometimes dealers offer a 0% interest buying incentive), but it is worth looking into. You might even be able to get a better deal from one of the lenders based on what another lender is offering. It pays to shop around.

Do I need a good credit rating for a car loan?

On the negative side, you will likely need a good credit score to secure a personal car loan. Monthly payments are often higher, as loan periods tend to be shorter. You won’t get a manufacturer’s contribution (if one is available) unless you take their finance. You will be responsible for all repairs not covered by the warranty, because you will own the car outright from the point of sale.

 

What about car finance deals?

Most car dealers encourage people to buy their vehicles by offering attractive deals like 0% financing, no payments for the first few months, lower monthly payments, or even free fuel and other perks. Some deals are better than others though, and a 0% deal on an overpriced car is no deal at all, so it pays to take at least as much time shopping for finance deals as you take shopping for the car itself.

 

What to consider when buying a car on finance

Look for affordable monthly payments. If you can’t afford the payments, the deal is a no-starter.

If the payments look affordable, consider the fees and interest rates (keeping in mind the loan period) and figure out the actual cost. It may be worth it to pay considerably more overall, if it means being able to secure the car you want, right away, with affordable payments – that’s up to you – but make sure you know the facts before making your decision.

Consider the amount of deposit you’ll need to contribute. The more you put in, the better the deal you should get.

Finally, make sure to pay attention to the mileage limits imposed by the provider. If you are going to drive the car more than those limits allow, costs can add up very quickly and come as a shock once you reach the “end” of your loan period; you may find out that there is considerably more money left to pay.

 

The other types of car finance

If you want to be very thorough, which we recommend, also look at hire purchase (HP) plans, personal loans, 0% credit cards, or leasing arrangements.

 

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